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RBC Capital lowered its rating on Fair Isaac Corporation to sector perform, a grade that suggests the stock will likely perform in line with the rest of its industry rather than beating it. The firm set a price target of $770.
This move follows the company's recent shift toward a custom pricing model for mortgage scores. While FICO remains the standard for most lending decisions, analysts are weighing how this new pricing strategy and competition from rival scores might affect growth in the coming year. The average price target across all firms now sits at about $993.
Source: RBC Capital
After Fair Isaac Corporation reported its November results, we raised our growth projections for annual recurring revenue from the software platform. We have added the shift toward individual price structures for mortgage lenders and the October workforce reductions to what we track. We also added the impact of the three billion dollar share repurchase program on the company's total debt. We now count on a cheaper rival credit score having equal status with FICO in the mortgage market.
Wells Fargo set its price target for the stock at $650. This is lower than the current price of about $724 and sits well below the average analyst target of $993. The move follows the company's recent earnings report and its decision to shift how it prices credit scores for mortgages.
Source: Wells Fargo
FICO reported a strong end to its fiscal year, with revenue jumping to $657 million from $516 million a year ago. This growth was driven by the company's ability to charge more for its credit scores, which are essential for most bank loans. Even with one-time costs for a legal settlement and job cuts, the company brought in $294 million in cash from its operations.
This result supports the idea that FICO owns a unique position in the financial system. Because banks rely so heavily on these scores to judge risk, the company can raise prices without losing many customers. While the stock fell slightly today, the underlying business is growing its profits and cash flow at a fast pace.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
FICO is changing how it charges banks that use its scores for new mortgages. Instead of one flat fee for everyone, it will tailor prices to individual customers. Because of this big shift in how it makes money, management is not giving its usual financial forecast for the coming year.
This change adds some uncertainty for the next few months, but it likely gives FICO more ways to capture value from its biggest users. For a long-term owner, the lack of a short-term forecast is less important than whether this new structure helps the company keep raising its total revenue from the mortgage market.
Source: WSJ
Management consistently sets a bar they can clear, beating profit targets for seven straight quarters as the software business outruns their own forecasts.
| Expectation | |
|---|---|
| EPS | $10.53 |
| Revenue | $608M |
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